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July 19, 2013

TrimTabs Reports Record Flows Into Equity Funds

U.S. equity mutual funds and ETFs get $34.4 billion so far in July

Traders at the New York Stock Exchange. (Photo: AP)

The numbers might seem quaint, but an oft-cited statistic from the Investment Company Institute found that investors poured a record $309 billion into equity mutual funds at the top of the market in 2000, purchasing shares at the highest possible price, while pulling a record $50 billion from bond funds.

Conversely, investors put a record $140 billion into bond funds in 2002, while pulling a record $27 billion out of equity funds at the bottom of the market, selling at the lowest price. In both instances, investors did the exact opposite of what prudent investment required.

It’s happening again.

TrimTabs Investment Research reported on Friday that U.S. equity mutual funds and exchange-traded funds have received $34.4 billion in July through Wednesday, July 17, as markets hit a series of repeat record highs. This month’s inflow is already the second highest on record.

That outflow far exceeded the previous record monthly outflow of $41.8 billion at the height of the financial crisis in October 2008.

“The ‘great rotation’ so many pundits have been expecting may finally be getting under way,” David Santschi, CEO of TrimTabs, said of the latest equity figures. “Since the start of June, U.S. equity funds have taken in $34.2 billion, while bond funds have lost $77.3 billion.”

In a research note, TrimTabs explained that global equity funds were also receiving plenty of fresh cash. Global equity mutual funds and exchange-traded funds have taken in $9.2 billion in July.

“The strong enthusiasm for equities should give contrarians pause,” Santschi said. “Four of the 10 largest inflows into U.S. equity funds occurred at the peak of the technology bubble in early 2000.”

TrimTabs also reported that outflows from bond funds have slowed dramatically. Bond mutual funds and ETFs have redeemed $9.4 billion in July.

“The mere suggestion that the Fed would take away the liquidity punchbowl in the future prompted investors to dump bonds at a record pace,” Santsch concluded. “While selling has subsided this month, what will happen when the Fed does more than just talk?”